Brexit: Will UK companies be debarred from EU public contracts?

A legal overview on EU public markets

Recent headlines ("Macron wants British firms frozen out of EU contracts (£)") could have caused a few CEOs to splutter over their cornflakes or croissants. Such a move would provoke a tit-for-tat battle that would impact public service companies and the delivery of public services across Europe.

Currently public tendering throughout the EU is ruled by a range of EU legislation (public procurement) aimed at ensuring an open marketplace for public services, with no discrimination and a level playing field. At stake is a 250 billion Euro market for the EU27 and a 100 billion Euro market for the UK, according to a recent EU study.

In reality the outlook for UK and EU27 business in this important market is less bleak.

Access to the EU27 and UK procurement markets will undoubtedly be an important part of the Brexit negotiations. As yet, the approach of the UK Government is unknown. No one can predict how those negotiations will go or whether there will be a deal at all.

Many UK headquartered companies are prominent suppliers to the EU27 and to EU institutions - and vice versa. Indeed, the UK public sector is heavily reliant on suppliers from the EU27 (France in particular) for transport and IT services among others. There is no signal from the UK Government that it wishes to close the UK public sector marketplace or stop UK businesses accessing EU27 marketplaces. That would be at odds with the aspirations of the UK for “ forming a new partnership with Europe” and “a stronger, fairer, more global Britain”.

In addition, the UK Government's White Paper on the Great Repeal Bill indicates that there will be no immediate change to any EU-derived law, including therefore public procurement law.

So what are the options?

The UK Government will probably wish to agree a bespoke agreement allowing for mutual continuing access to public sector marketplaces. This could be based on the current rules but might come at a political price too high to pay. Alternatively, the UK could look to the General Agreement on Procurement under the WTO. While at the moment the UK is a WTO party through the EU, there are legal niceties about whether it would have automatic membership after it leaves the Union, or would have to apply anew.

Under the GPA the UK would have continued access to EU27 markets and vice versa, and would have scope over time (if it wanted to) to move away from EU mandated rules to a system which reflected its own preferences. Neither a 'buy British' nor a 'buy EU' policy would be allowed.

Even in a 'no deal' scenario the UK could join the GPA and have continuing access to the EU27 public sector marketplace (and vice versa), albeit under less favourable terms.

Some general lessons

Looking at this tiny piece of the overall Brexit jigsaw, it is possible to draw some important lessons.

Lesson One: legal realities are not the same as political soundbites. The lawyer’s job is to present and explain the real legal position.

Lesson Two: more detail is needed. At the minute, even legal experts are reduced to ‘reading tea leaves’ to divine UK Government policy. This makes contingency planning very difficult.

Lesson Three: this will be fiendishly complicated to agree with the EU. The UK's withdrawal agreement with the EU (if there is one) will need to address complicated issues like interim access to marketplaces pending a final deal and establishment of new UK tendering infrastructure to replace EU tools.

Lesson Four: this will be fiendishly complicated to legislate for. EU derived procurement legislation represents an infinitesimally small proportion of all the EU-derived legislation in the UK. The UK Government has signalled in its White Paper on the Great Repeal Bill that it will 'repatriate EU-derived law but correct it for necessary changes arising from the Brexit process'. But the terms of any changes will depend on the withdrawal agreement and will not be known until late in the Brexit process. Taking the tiny piece of the jigsaw of procurement law as an example, these changes will inevitably be complicated (see Lesson Three) and require careful thought. The risk of a legislative bottleneck is huge.

Lesson Five: the devolved administrations cannot be ignored. Under the current devolution settlements the devolved administration in Scotland is responsible for implementing public procurement rules there (as long as they comply with the EU rules). To date there has been almost no divergence between the different approaches in the UK. The Great Repeal Bill White Paper implies understandably that these powers will remain with the devolved administrations. To what extent then will Scotland be involved in shaping the UK deal with the EU on this subject? And to what extent could Scotland choose to diverge from the rest of the UK?

Conclusion

This is classic Brexit territory. A little obscure but vitally important. A small piece of the overall jigsaw but time consuming and challenging in its own right. CEOs, procurement professionals and lawyers should keep their eyes peeled and make their voices heard.

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DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world.

DLA Piper is a global law firm with lawyers located in more than 40 countries throughout the Americas, Europe, the Middle East, Africa and Asia Pacific, positioning us to help clients with their legal needs around the world.